Sunday, December 28, 2014

Japan Unveils $29 Billion Stimulus Package

Japan’s
government approved on Saturday stimulus spending worth $29 billion
aimed at helping the country’s lagging regions and households through
steps like subsidies and merchandise vouchers, but analysts are
skeptical about how much the government can spur growth.

The
package, worth 3.5 trillion yen (about $29 billion) was unveiled two
weeks after a huge election victory by Prime Minister Shinzo Abe’s
ruling coalition gave him a fresh mandate to push through his stimulus
policies, known as Abenomics. The government said it expected the
stimulus plan to increase Japan’s gross domestic product 0.7 percent.

Given
Japan’s dire public finances, the government will avoid issuing fresh
debt and will finance the package with unspent money from previous
budgets and with tax revenues that have exceeded budget forecasts
because of economic recovery.

With
nationwide local elections planned in April, which Abe’s ruling bloc
must win to cement his grip on power, the package centers on subsidies
to regional governments to stimulate private consumption and support
small firms.

Of
the total, ¥1.8 trillion will be spent on measures such as distributing
coupons to buy merchandise, providing low-income households with
subsidies for fuel purchases, supporting funding at small firms and
reviving regional economies.

The
remaining ¥1.7 trillion will be used for disaster prevention and
rebuilding disaster-hit areas, including those affected by the March
2011 tsunami. Tokyo will also seek to bolster the housing market by
lowering the mortgage rates offered by a government home-loan agency.

“It’s
better than doing nothing, but I don’t think this stimulus will have a
big impact on boosting the economy,” said Masaki Kuwahara, a senior
economist at Nomura Securities. "This package directly targets
households and regions left behind by Abenomics, so it may work
favorably to Abe’s ruling coalition in the nationwide local elections.”

Mr.
Kuwahara said the stimulus was unlikely to spur consumer spending while
uncertainty remained over the economic outlook, adding that it could
push up G.D.P. about 0.2 percent.

With
little room left for Japan to resort to big fiscal spending, analysts
say the government must pin its hopes on wage increases by big companies
to play a greater role in bolstering the economy and pulling Japan out
of deflation.

The
stimulus highlights a tough balance Mr. Abe must strike between lifting
the economy and curbing runaway debt, which is more than twice the size
of the country’s G.D.P.